TEXT-S&P report: Japanese corporations' pension liabilities

Reuters Staff

2 Min Read

(The following statement was released by the rating agency)

Dec 27 - Recent revisions to accounting standards have pushed retirement benefit obligations further up the list of challenges facing Japanese corporate issuers, Standard & Poor's Ratings Services said in a report published today. The Accounting Standards Board of Japan (ASBJ) announced revised accounting standards for retirement benefits in May 2012 that stipulate recognizing retirement benefit obligations on balance sheet that had not been recognized so far.

Standard & Poor's does not expect the revisions to greatly affect our analysis of Japanese industrial corporations' credit quality. But in the long term, pension liabilities threaten to weigh more heavily on the companies.

Standard & Poor's has already factored in unrecognized obligations in our ratings on Japanese industrial corporations, and thus the accounting change will have limited impact on their credit quality, in our view. Nevertheless, there are two factors that may affect credit quality: In the short term, financial covenants could be impacted if not altered by banks, which could affect corporations' financial management; and in the medium to long term, corporations' behavior could change if pension obligations become more obvious on the balance sheet and cash could flow out earlier.